2. INTERNATIONAL FINANCIAL
REPORTING STANDARDS
The International Financial Reporting Standards, usually
called the IFRS Standards, are standards issued by the
IFRS Foundation and the International Accounting Standards
Board (IASB) to provide a common global language for
business affairs so that company accounts are
understandable and comparable across international
boundaries.
They are a consequence of growing international
shareholding and trade and are particularly important for
companies that have dealings in several countries.
They are progressively replacing the many different national
accounting standards.
They are the rules to be followed by accountants to maintain
books of accounts which are comparable, understandable,
reliable and relevant as per the users internal or external.
3. FEATURES OF IFRS
FAIR PRESENTATION AND COMPLIANCE WITH IFRS: Fair
presentation requires the faithful representation of the effects of the
transactions, other events and conditions in accordance with the
definitions and recognition criteria for assets, liabilities, income and
expenses set out in the Framework of IFRS.
GOING CONCERN: Financial statements are present on a going
concern basis unless management either intends to liquidate the
entity or to cease trading, or has no realistic alternative but to do so.
ACCRUAL BASIS OF ACCOUNTING: An entity shall recognize
items as assets, liabilities, equity, income and expenses when they
satisfy the definition and recognition criteria for those elements in
the Framework of IFRS.
MATERIALITY AND AGGREGATION: Every material class of
similar items has to be presented separately. Items that are of a
dissimilar nature or function shall be presented separately unless
they are immaterial.
4. FEATURES OF IFRS
OFFSETTING: Offsetting is generally forbidden in IFRS.
FREQUENCY OF REPORTING: IFRS requires that at
least annually a complete set of financial statements is
presented. However listed companies generally also
publish interim financial statements
COMPARATIVE INFORMATION: IFRS requires entities
to present comparative information in respect of the
preceding period for all amounts reported in the current
period's financial statements. In addition comparative
information shall also be provided for narrative and
descriptive information if it is relevant to understanding
the current period's financial statements.
5. ELEMENTS OF FINANCIAL
STATEMENTS
STATEMENT OF FINANCIAL POSITION
STATEMENT OF COMPREHENSIVE INCOME
STATEMENT OF CHANGE IN EQUITY
CASH FLOW STATEMENT
NOTES TO FINANCIAL STATEMENT
6. STATEMENT OF FINANCIAL
POSITION
The elements directly related to the measurement of the
statement of financial position include:
Asset: An asset is a resource controlled by the entity as a
result of past events and from which future economic benefits
are expected to flow to the entity.
Liability: A liability is a present obligation of the entity arising
from the past events, the settlement of which is expected to
result in an outflow from the entity of resources embodying
economic benefits, i.e. assets.
Equity: Nominal equity is the nominal residual interest in the
nominal assets of the entity after deducting all its liabilities in
nominal value.
7. STATEMENT OF
COMPREHENSIVE INCOME
The financial performance of an entity is presented in the
statement of comprehensive income, which consists of the
income statement (Statement of Profit/Loss) and the
statement of other comprehensive income (usually presented
in two separate statements
Revenues: increases in economic benefit during an
accounting period in the form of inflows or enhancements of
assets, or decrease of liabilities that result in increases in
equity. However, it does not include the contributions made
by the equity participants (for example owners, partners or
shareholders).
Expenses: decreases in economic benefits during an
accounting period in the form of outflows, or depletions of
assets or incurrence of liabilities that result in decreases in
equity. However, these don't include the distributions made to
the equity participants.
8. STATEMENT OF CHANGES IN
EQUITY
The statement of changes in equity consists of a reconciliation
of the changes in equity in which the following information is
provided:
total comprehensive income for the period, showing separately
the total amounts attributable to owners of the parent and to
non-controlling interests;
for each component of equity, a reconciliation between the
carrying amount at the beginning and the end of the period,
separately disclosing changes resulting from:
profit or loss;
other comprehensive income; and
transactions with owners in their capacity as owners,
showing separately contributions by and distributions to
owners and changes in ownership interests in subsidiaries
that do not result in a loss of control.
9. CASH FLOW STATEMENT
Operating cash flows: the principal revenue-producing activities
of the entity and are generally calculated by applying the indirect
method, whereby profit or loss is adjusted for the effects of
transaction of a non-cash nature, any deferrals or accruals of past
or future cash receipts or payments, and items of income or
expense associated with investing or financing cash flows.
Investing cash flows: the acquisition and disposal of long-term
assets and other investments not included in cash equivalents.
These represent the extent to which expenditures have been
made for resources intended to generate future income and cash
flows. Only expenditures that result in a recognized asset in the
statement of financial position are eligible for classification as
investing activities.
Financing cash flows: activities that result in changes in the size
and composition of the contributed equity and borrowings of the
entity. These are important because they are useful in predicting
claims on future cash flows by providers of capital to the entity.
10. NOTES TO FINANCIAL
STATEMENTS
Notes to the Financial Statements: These shall
(a) present information about the basis of preparation of
the financial statements and the specific accounting
policies used;
(b) disclose the information required by IFRSs that is not
presented elsewhere in the financial statements; and
(c) provide information that is not presented elsewhere
in the financial Statement of Cash Flow statements, but
is relevant to an understanding of any of them.
11. REQUIREMENTS OF IFRS
IFRS financial statements consist of :-
a Statement of Financial Position
a Statement of Comprehensive Income separate
statements comprising an Income Statement and
separately a Statement of Comprehensive
Income, which reconciles Profit or Loss on the
Income statement to total comprehensive income
a Statement of Changes in Equity (SOCE)
a Cash Flow Statement or Statement of Cash
Flows
notes, including a summary of the significant
accounting policies.
12. MERITS OF IFRS
Improved Flow of Capital
International Financial Reporting Standards, or IFRS, facilitates the
convergence and transparency of accounting practices. This boosts
the flow of capital across the international markets. Investors and
other stakeholders find it more convenient to compare their
business performance with other international companies. This
makes it easier and cheaper for them to raise business capital from
investors across the globe.
Globalized Orientation
Using IFRS frees a business from the restrictive scope of national-
level accounting standards. Financial reports become automatically
acceptable in IFRS-compliant countries, and companies don't need
to prepare alternative sets of financial statements when pursuing
business interests in these countries. This reduces a business's
costs of preparing financial statements destined for international
audiences.
13. MERITS OF IFRS
Generalized Standard-Setting
IFRS stipulations are flexible to both expected and unexpected
changes in the global business environment because they are
based on broad principles. The generalized stipulations are
designed to be applicable and accommodative to varying
jurisdictional circumstances and traditions, with minimal
interventions of the IASB. For example, the IASB does not
recommend any specific formats for preparing financial statements.
This gives a business the discretion of choosing the presentation
format that best suits it and users of its financial reports.
Enhanced Financial Reporting
The use of IFRS enhances the quality of financial reports because it
leaves little room for undermining the objectives of the set
standards. This is unlike country-specific accounting rules that are
susceptible to circumventions. Quality financial reports boost
investor confidence in a business.
14. ADOPTION OF IFRS
IFRS are used in many parts of the world, including the South
Korea, European Union, India, Hong Kong, Australia,
Malaysia, Pakistan, GCC countries, Russia, Chile,
Philippines, South Africa, Singapore and Turkey, but not in
the United States.
It is generally expected that IFRS adoption worldwide will be
beneficial to investors and other users of financial
statements, by reducing the costs of comparing alternative
investments and increasing the quality of information.
Companies are also expected to benefit, as investors will be
more willing to provide financing.
Companies that have high levels of international activities are
among the group that would benefit from a switch to IFRS.
Companies that are involved in foreign activities and investing
benefit from the switch due to the increased comparability of
a set accounting standard.
